Mon. Oct 18th, 2021

Market Overview

The automobile rental business is a multi-billion greenback sector of the US economic system. The US section of the business averages about $18.5 billion in income a yr. At present, there are roughly 1.9 million rental autos that service the US section of the market. As well as, there are various rental companies in addition to the business leaders that subdivide the overall income, specifically Greenback Thrifty, Finances and Vanguard. In contrast to different mature service industries, the rental automobile business is very consolidated which naturally places potential new comers at a cost-disadvantage since they face excessive enter prices with decreased risk of economies of scale. Furthermore, many of the revenue is generated by a number of companies together with Enterprise, Hertz and Avis. For the fiscal yr of 2004, Enterprise generated $7.4 billion in whole income. Hertz got here in second place with about $5.2 billion and Avis with $2.97 in income.

Stage of Integration

The rental automobile business faces a very totally different surroundings than it did 5 years in the past. In line with Enterprise Journey Information, autos are being rented till they’ve gathered 20,000 to 30,000 miles till they’re relegated to the used automobile business whereas the turn-around mileage was 12,000 to fifteen,000 miles 5 years in the past. Due to gradual business development and slender revenue margin, there isn’t any imminent risk to backward integration inside the business. Actually, among the many business gamers solely Hertz is vertically built-in by way of Ford.

Scope of Competitors

There are numerous components that form the aggressive panorama of the automobile rental business. Competitors comes from two fundamental sources all through the chain. On the holiday shopper’s finish of the spectrum, competitors is fierce not solely as a result of the market is saturated and nicely guarded by business chief Enterprise, however opponents function at a price drawback together with smaller market shares since Enterprise has established a community of sellers over 90 p.c the leisure section. On the company section, then again, competitors may be very robust on the airports since that section is beneath tight supervision by Hertz. As a result of the business underwent an enormous financial downfall in recent times, it has upgraded the size of competitors inside many of the corporations that survived. Competitively talking, the rental automobile business is a war-zone as most rental companies together with Enterprise, Hertz and Avis among the many main gamers have interaction in a battle of the fittest.


Over the previous 5 years, most companies have been working in the direction of enhancing their fleet sizes and rising the extent of profitability. Enterprise at the moment the corporate with the most important fleet within the US has added 75,000 autos to its fleet since 2002 which assist enhance its variety of amenities to 170 on the airports. Hertz, then again, has added 25,000 autos and broadened its worldwide presence in 150 counties versus 140 in 2002. As well as, Avis has elevated its fleet from 210,000 in 2002 to 220,000 regardless of latest financial adversities. Through the years following the financial downturn, though most corporations all through the business had been struggling, Enterprise among the many business leaders had been rising steadily. For instance, annual gross sales reached $6.3 in 2001, $6.5 in 2002, $6.9 in 2003 and $7.4 billion in 2004 which translated right into a development charge of seven.2 p.c a yr for the previous 4 years. Since 2002, the business has began to regain its footing within the sector as general gross sales grew from $17.9 billion to $18.2 billion in 2003. In line with business analysts, the higher days of the rental automobile business have but to return. Over the course of the following a number of years, the business is predicted to expertise accelerated development valued at $20.89 billion annually following 2008 “which equates to a CAGR of two.7 % [increase] within the 2003-2008 interval.”


Over the previous few years the rental automobile business has made a substantial amount of progress to facilitate it distribution processes. At present, there are roughly 19,000 rental places yielding about 1.9 million rental vehicles within the US. Due to the more and more plentiful variety of automobile rental places within the US, strategic and tactical approaches are taken under consideration to be able to insure correct distribution all through the business. Distribution takes place inside two interrelated segments. On the company market, the vehicles are distributed to airports and lodge environment. On the leisure section, then again, vehicles are distributed to company owned amenities which can be conveniently situated inside most main roads and metropolitan areas.

Up to now, managers of rental automobile corporations used to depend on gut-feelings or intuitive guesses to make choices about what number of vehicles to have in a specific fleet or the utilization stage and efficiency requirements of conserving sure vehicles in a single fleet. With that methodology, it was very tough to take care of a stage of stability that might fulfill shopper demand and the specified stage of profitability. The distribution course of is pretty easy all through the business. To start with, managers should decide the variety of vehicles that should be on stock every day. As a result of a really noticeable drawback arises when too many or not sufficient vehicles can be found, most automobile rental corporations together with Hertz, Enterprise and Avis, use a “pool” which is a gaggle of unbiased rental amenities that share a fleet of autos. Principally, with the swimming pools in place, rental places function extra effectively since they scale back the chance of low stock if not eradicate rental automobile shortages.

Market Segmentation

Most corporations all through the chain make a revenue based mostly of the kind of vehicles which can be rented. The rental vehicles are categorized into economic system, compact, intermediate, premium and luxurious. Among the many 5 classes, the economic system sector yields probably the most revenue. For example, the economic system section by itself is liable for 37.7 p.c of the overall market income in 2004. As well as, the compact section accounted for 32.3 p.c of general income. The remainder of the opposite classes covers the remaining 30 p.c for the US section.

Historic Ranges of Profitability

The general profitability of the automobile rental business has been shrinking in recent times. Over the previous 5 years, the business has been struggling identical to the remainder of the journey business. Actually, between the years 2001 and 2003 the US market has skilled a average discount within the stage of profitability. Particularly, income fell from $19.4 billion in 2000 to $18.2 billion in 2001. Subsequently, the general business income eroded additional to $17.9 billion in 2002; an quantity that’s minimally increased than $17.7 billion which is the general income for the yr 1999. In 2003, the business skilled a barely noticeable enhance which introduced revenue to $18.2 billion. On account of the financial downturn in recent times, a few of the smaller gamers that had been extremely depending on the airline business have performed a substantial amount of technique realignments as a approach of making ready their corporations to deal with eventual financial adversities that will encompass the business. For the yr 2004, then again, the financial state of affairs of most companies have progressively improved all through the business since most rental companies have returned far higher income relative to the anterior years. For example, Enterprise realized revenues of $7.4 billion; Hertz returned revenues of $5.2 billion and Avis with $2.9 billion in income for the fiscal yr of 2004. In line with business analysts, the rental automobile business is predicted to expertise regular development of two.6 p.c in income over the following a number of years which interprets into a rise in revenue.

Aggressive Rivalry Amongst Sellers

There are numerous components that drive competitors inside the automobile rental business. Over the previous few years, broadening fleet sizes and rising profitability has been the main target of most corporations inside the automobile rental business. Enterprise, Hertz and Avis among the many leaders have been rising each in gross sales and fleet sizes. As well as, competitors intensifies as companies are continuously making an attempt to enhance their present situations and provide extra to shoppers. Enterprise has practically doubled its fleet dimension since 1993 to roughly 600,000 vehicles immediately. As a result of the business operates on such slender revenue margins, worth competitors just isn’t an element; nonetheless, most corporations are actively concerned in creating values and offering a spread of facilities from technological devices to even free rental to fulfill clients. Hertz, for instance, integrates its By no means-Misplaced GPS system inside its vehicles. Enterprise, then again, makes use of refined yield administration software program to handle its fleets.

Lastly, Avis makes use of its OnStar and Skynet system to raised serve the buyer base and provides free weekend rental if a buyer rents a automobile for 5 consecutive days Furthermore, the buyer base of the rental automobile business has comparatively low to no switching price. Conversely, rental companies face excessive fastened working prices together with property rental, insurance coverage and upkeep. Consequently, rental companies are sensitively pricing there rental vehicles simply to get better working prices and adequately meet their clients calls for. Moreover, as a result of the business skilled gradual development in recent times as a consequence of financial stagnation that resulted in an enormous decline in each company journey and the leisure sector, most corporations together with the business leaders are aggressively making an attempt to reposition their companies by progressively lessening the dependency stage on the airline business and regaining their footing within the leisure aggressive area.

The Potential Entry of recent Rivals

Coming into the automobile rental business places new comers at a critical drawback. Over the previous few years following the financial downturn of 2001, most main rental corporations have began rising their market shares within the trip sector of the business as a approach of insuring stability and reducing the extent of dependency between the airline and the automobile rental business. Whereas this pattern has engendered long run success for the present companies, it has heightened the aggressive panorama for brand new comers. Due to the severity of competitors, current companies akin to Enterprise, Hertz and Avis fastidiously monitor their aggressive radars to anticipate Sharpe retaliatory strikes in opposition to new entrants. One other barrier to entry is created due to the saturation stage of the business.

For instance, Enterprise has taken the primary mover benefit with its 6000 amenities by saturating the leisure section thereby inserting not solely excessive restrictions on the commonest distribution channels, but additionally excessive useful resource necessities for brand new companies. At present, Enterprise has a rental location inside 15 miles of 90 p.c of the US inhabitants. Due to the community of sellers Enterprise has established across the nation, it has turn out to be comparatively steady, extra recession proof and most significantly, much less reliant on the airline business in comparison with its opponents. Hertz, then again, is using the total spectrum of its 7200 shops to safe its place within the market. Principally, the emergence of many of the business leaders into the leisure market not solely drives rivalry, but additionally it varies instantly with the extent of complexity of coming into the automobile rental business.

The Risk of Substitute

There are numerous substitutes obtainable for the automobile rental business. From a technological standpoint, renting a automobile to go the gap for a gathering is a much less engaging different versus video conferencing, digital groups and collaboration software program with which an organization can instantly setup a gathering with its staff from wherever around the globe at a less expensive price. As well as, there are different options together with taking a cab which is a passable substitute relative to high quality and switching price, however it is probably not as attractively priced as a rental automobile for the course of a day or extra. Whereas public transportation is probably the most price environment friendly of the options, it’s extra pricey by way of the method and time it takes to succeed in one’s vacation spot. Lastly, as a result of flying provides comfort, velocity and efficiency, it’s a very engaging substitute; nonetheless, it’s an unattractive different by way of worth relative to renting a automobile. On the enterprise section, automobile rental companies have extra safety in opposition to substitutes since many corporations have carried out journey insurance policies that set up the parameters of when renting a automobile or utilizing a substitute is the most effective plan of action.

In line with Tracy Esch, an Benefit director of selling operations, her firm rents vehicles as much as a 200-mile journey earlier than contemplating an alternate. Principally, the specter of substitute within reason low within the automobile rental business for the reason that results the substitute merchandise have don’t pose a major risk of revenue erosion all through the business.

The Bargaining Energy of Suppliers

Provider energy is low within the automobile rental business. Due to the provision of substitutes and the extent of competitors, suppliers would not have a substantial amount of affect within the phrases and situations of supplying the rental vehicles. As a result of the rental vehicles are normally bought in bulk, rental automobile brokers have vital affect over the phrases of the sale since they possess the flexibility to play one provider in opposition to one other to decrease the gross sales worth. One other issue that reduces provider energy is the absence of switching price. That’s, consumers should not affected from buying from one provider over one other and most significantly, altering to totally different provider’s merchandise is barely noticeable and doesn’t have an effect on shopper’s rental decisions.

The Bargaining Energy of Consumers

Whereas the leisure sector has little or no energy, the enterprise section possesses a major quantity of affect within the automobile rental business. An fascinating pattern that’s at the moment underway all through the business is forcing automobile rental corporations to adapt to the wants of company vacationers. This pattern considerably reduces provider energy or the rental companies’ energy and will increase company purchaser energy for the reason that enterprise section is excruciatingly worth delicate, nicely knowledgeable concerning the business’s worth construction, buy in bigger portions they usually use the web to power decrease costs. Trip consumers, then again, have much less affect over the rental phrases. As a result of vacationers are normally much less worth delicate, buy in lesser quantities or buy extra sometimes, they’ve weak bargaining energy.

5 Forces

At present the automobile rental business is going through a very totally different surroundings than it did 5 years in the past. Competitively talking, the revolution of the 5 forces across the automobile rental business exerts some robust financial stress that has considerably tarnished the aggressive attractiveness of the business. On account of the financial downturn in recent times, many corporations went beneath specifically Finances and the Vanguard Group as a result of their enterprise infrastructure succumbed to the untenability of the aggressive surroundings. At present, only a few companies together with Enterprise, Hertz and Avis return a barely above-average income in comparison with the remainder of the business. Realistically talking, the automobile rental sector just isn’t a really engaging business due to the extent of competitors, the limitations to entry and the aggressive stress from the substitute companies.

Strategic Group Mapping

As a reasonably concentrated sector, there’s a clear hierarchy within the automobile rental business. From an financial standpoint, disparities exist from plenty of dimensions together with income, fleet dimension and the market dimension every agency holds out there place. For example, Enterprise dominates the business with a fleet dimension of roughly 600,000 autos together with its market dimension and its stage of profitability. Hertz is available in second place with its variety of market shares and fleet quantity. As well as, Avis ranks third on the map. Avis is amongst one of many corporations that’s having points recovering its income margins from previous to the financial downturn. For example, in 2000 Avis returned revenues of roughly $4.23 billion. Over the course of the following a number of years following 2000, the income of Avis has been considerably decrease than that of 2000. As a approach of decreasing uncertainty most corporations are progressively lessening the extent of dependency on the airline business and rising the leisure market. This pattern is probably not in the most effective curiosity of Hertz since its enterprise technique is intricately linked to the airports.

Key Success Elements

There are numerous key success components that drive profitability all through the automobile rental business. Capability utilization is without doubt one of the components that determines success within the business. As a result of rental companies expertise lack of income when there are both too few or too many vehicles sitting of their heaps, it’s of paramount significance to effectively handle the fleets. This success issue represents an enormous power for the business because it lowers if not utterly eliminates the probably of working brief on rental vehicles. Environment friendly distribution is one other issue that retains the business worthwhile. Regardless of the constructive relationship between fleet sizes and the extent of profitability, companies are continuously rising their fleet sizes due to the aggressive forces that encompass the business. As well as, comfort is without doubt one of the essential attributes by which shoppers choose rental companies. That’s, automobile rental shoppers are extra liable to renting vehicles from companies which have handy rental and drop off places. One other key success issue that’s frequent amongst competing companies is the combination of expertise of their enterprise processes. Via expertise, as an illustration, the automobile rental corporations create methods to fulfill shopper demand by making renting a automobile a really agreeable ordeal by including the comfort of on-line rental amongst different options. Moreover, companies have built-in navigation techniques together with roadside help to supply clients the piece of thoughts when renting vehicles.

Trade Attractiveness

There are numerous components that impression the attractiveness of the automobile rental business. As a result of the business is reasonably concentrated, it places new market entrants at an obstacle. That’s, its low focus represents a pure barrier to coming into the business because it permits current agency to anticipate sharp retaliations in opposition to new entrants. Due to the dangers related to coming into the business amongst different components, it isn’t a really engaging sector of {the marketplace}. From a aggressive standpoint, the leisure market is 90 p.c saturated due to the energetic efforts of Enterprise to dominate this sector of the market. However, the airport terminals are closely guarded by Hertz. Realistically talking, entry within the business provides low profitability relative to the prices and dangers related. For many shoppers, the principle figuring out components of selecting one firm over one other are worth and comfort. Due to this purpose, rental companies are very circumspect about setting their charges and that typically power even the business main gamers within the place of providing extra to the shoppers for much less simply to stay aggressive. Hertz, for instance, provides wi-fi web to its clients simply so as to add extra comfort to their journey plans. Avis then again, provides free weekend specials if a buyer rents a automobile for 5 consecutive weekdays. Based mostly on the impression of the 5 forces, the automobile rental sector just isn’t a really engaging business to potential new market entrants.


The rental automobile business is in a state of restoration. Though it might seem to be the business is performing nicely financially, it’s nonetheless progressively regaining its footing relative to its precise financial place inside the final 5 years. As a approach of insuring profitability, in addition to in search of market shares and stability, most corporations all through the chain have a standard objective that offers with reducing the extent of dependency on the airline business and transferring towards the leisure section. This state of movement has engendered some fierce competitors amongst business opponents as they try to defend their market shares. From a futuristic perspective, the higher days of the automobile rental business have but to return. As the extent of profitability will increase, I imagine that many of the business leaders together with Enterprise, Hertz and Avis can be bounded by the financial and aggressive limitations of mobility of their strategic teams and new comers may have a greater probability of infiltrating and realizing success within the automobile rental business.


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